[NASDAQ] PDF Solutions® Reports Fourth Fiscal Quarter and Fiscal Year 2016 Results

PDF Solutions, Inc. (NASDAQ:PDFS), the provider of process-design integration technologies to enhance integrated circuit (IC) manufacturability, Feb. 14, announced financial results for its fourth fiscal quarter and fiscal year ended December 31, 2016.

Total revenues for the fourth fiscal quarter of 2016 totaled $28.4 million, up 4% from $27.3 million for the third fiscal quarter of 2016 and up 18% when compared to total revenues of $24.1 million for the fourth fiscal quarter of 2015. Design-to-silicon-yield solutions revenue for the fourth fiscal quarter of 2016 totaled $19.5 million, up 5% from $18.6 million for the third fiscal quarter of 2016 and up 36% when compared to Design-to-silicon-yield solutions revenue of $14.3 million for the fourth fiscal quarter of 2015. Gainshare performance incentives revenue for the fourth fiscal quarter of 2016 totaled $9.0 million, up 3% from $8.7 million for the third fiscal quarter of 2016 and down 8% from $9.8 million for the fourth fiscal quarter of 2015.

Total revenues for the fiscal year ended December 31, 2016, totaled $107.5 million, up 10% when compared with total revenues of $98.0 million for the fiscal year ended December 31, 2015. Design-to-silicon-yield solutions revenues for the fiscal year ended December 31, 2016, totaled $77.2 million, up 21% when compared with Design-to-silicon-yield solutions revenues of $63.8 million for the fiscal year ended December 31, 2015. Gainshare performance incentives revenues for the fiscal year ended December 31, 2016, totaled $30.3 million, down 11% when compared with Gainshare performance incentives revenues of $34.1 million for the fiscal year ended December 31, 2015.

On a GAAP basis, net income for the fourth fiscal quarter of 2016 was $2.9 million, or $0.09 per basic and diluted share, compared to $2.0 million, or $0.06 per basic and diluted share, for the third fiscal quarter of 2016, and compared to $2.8 million, or $0.09 per basic and diluted share, for the fourth fiscal quarter of 2015. Net income for the fiscal year ended December 31, 2016, was $9.1 million, or $0.29 per basic and $0.28 per diluted share, compared to net income of $12.4 million, or $0.39 per basic and diluted share, for the fiscal year ended December 31, 2015.

Cash and cash equivalents were $116.8 million at December 31, 2016, compared to $126.2 million at December 31, 2015.

Non-GAAP net income for the fourth fiscal quarter of 2016 was $5.6 million, or $0.17 per diluted share, compared to $5.4 million, or $0.17 per diluted share, for the third fiscal quarter of 2016, and compared to $5.7 million, or $0.18 per diluted share, for the fourth fiscal quarter of 2015. Non-GAAP net income for the fiscal year ended December 31, 2016, was $21.6 million, or $0.67 per diluted share, compared to non-GAAP net income of $25.6 million, or $0.80 per diluted share, for the fiscal year ended December 31, 2015. EBITDAR for the fourth quarter of 2016 was $7.4 million, compared to $7.2 million for the third fiscal quarter of 2016, and compared to $7.5 million for the fourth fiscal quarter of 2015. EBITDAR for the fiscal year ended December 31, 2016 was $28.5 million, compared to $32.5 million for the fiscal year ended December 31, 2015.

Fourth Quarter and Fiscal Year 2016 Financial Commentary Available Online

A Management Report reviewing the Company’s fourth quarter and fiscal year 2016 financial results, as well as providing first quarter 2017 financial outlook will be furnished to the SEC on Form 8-K (http://ir.pdf.com/sec.cfm).

Information Regarding Use of Non-GAAP Financial Measures

In addition to providing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), PDF Solutions also provides certain non-GAAP financial measures. Non-GAAP net income excludes the effects of non-recurring items, stock-based compensation expenses, amortization of acquired technology and other acquired intangible assets, and their related income tax effects, as applicable, as well as adjusts for the non-cash portion of income taxes. EBITDAR is calculated by taking GAAP net income, adding back the effects of non-recurring items, stock-based compensation expenses, amortization of acquired technology and other acquired intangibles, depreciation expense and income tax provision (benefit). These non-GAAP financial measures are used by management internally to measure the Company’s profitability and performance. PDF Solutions’ management believes that these non-GAAP measures provide useful supplemental measures to investors regarding the Company’s ongoing operations in light of the fact that none of these categories of expense has a current effect on the future uses of cash (with the exception of certain non-recurring items) nor do they impact the generation of current or future revenues. These non-GAAP results should not be considered an alternative to, or a substitute for, GAAP financial information, and may be different from similarly titled non-GAAP measures used by other companies. In particular, these non-GAAP financial measures are not a substitute for GAAP measures of income or loss as a measure of performance, or to cash flows from operating, investing and financing activities as a measure of liquidity. Since management uses these non-GAAP financial measures internally to measure profitability and performance, PDF Solutions has included these non-GAAP measures to give investors an opportunity to see the Company’s financial results as viewed by management. A reconciliation of the comparable GAAP financial measures to the non-GAAP financial measures is provided at the end of the Company’s financial statements presented below.

The statements made on the planned conference call regarding the Company's future expected business performance and financial results are forward looking and are subject to events and circumstances of the future. Actual results could differ materially from those expressed in these forward-looking statements. Risks and uncertainties that could cause results to differ materially include risks associated with: customers' production volumes at Gainshare-covered facilities; continued adoption of the Company's solutions by new and existing customers; project milestones or delays and performance criteria achieved; the provision of technology and services prior to the execution of a final contract; and other risks set forth in PDF Solutions' periodic public filings with the Securities and Exchange Commission, including, without limitation, its Annual Reports on Form 10-K, most recently filed for the year ended December 31, 2015, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K and amendments to such reports. The forward-looking statements made in the conference call are made as of the date hereof, and PDF Solutions does not assume any obligation to update such statements nor the reasons why actual results could differ materially from those projected in such statements.

About PDF Solutions

PDF Solutions enables customers to reduce the time to market of integrated circuits (“ICs”), lower the cost of IC design and manufacturing and improve profitability. The Company has developed proprietary products and provides services that target the entire Process Life Cycle, which is a term used to mean the time from technology development and the design of an IC to volume manufacturing of that IC to product assembly and test.

PDF Solutions’ products and services consist of proprietary test structures and electrical test systems, physical intellectual property, enterprise platform software and professional services. The Company’s Characterization Vehicle^® (CV^®) electrical test chip infrastructure provides core modeling capabilities, and is used by more leading manufacturers than any other test chips in the industry. The Design-for-Inspection™ (DFI™) solution extends the Company’s electrical characterization technologies into the e-beam measurement of extremely dense test structures, or DFI cells, across an entire fabrication process. Proprietary Template^™ layout patterns for standard cell libraries optimize area, performance, and manufacturability for designing IC products. The Exensio^® platform for big data unlocks relevant, actionable information buried in wafer fabrication, process control and test data through four, key components: Exensio-Yield, Exensio-Control, Exensio-Test, and Exensio-Char. The Exensio platform is available either on-premise or via software as a service (SaaS).

Headquartered in San Jose, Calif., PDF Solutions operates worldwide with additional offices in Canada, China, France, Germany, Italy, Japan, Korea, and Taiwan. PDF Solutions is listed on The NASDAQ National Market under the ticker symbol PDFS. For the Company’s latest news and information, visit http://www.pdf.com/.

Characterization Vehicle, CV, Exensio, PDF Solutions, and the PDF Solutions logo are registered trademarks of PDF Solutions, Inc. or its subsidiaries. Design-for-Inspection, DFI, and Template are trademarks of PDF Solutions, Inc. or its subsidiaries.


PDF SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)


	December 31,			December 31,
	2016			2015

ASSETS
Current assets:
Cash and cash equivalents	$	116,787		$	126,158
Accounts receivable, net		48,157			33,438
Prepaid expenses and other current assets		5,335			3,655
Total current assets		170,279			163,251
Property and equipment, net		19,341			11,325
Deferred tax assets		15,640			10,299
Goodwill		215			215
Intangible assets, net		4,223			5,028
Other non-current assets		12,631			1,651
Total assets	$	222,329		$	191,769

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,206		$	1,293
Accrued compensation and related benefits		5,959			4,812
Accrued and other current liabilities		2,080			2,382
Deferred revenues - current portion		8,189			4,702
Billings in excess of recognized revenue		88			1,267
Total current liabilities		18,522			14,456
Long-term income tax payable		3,354			2,540
Other non-current liabilities		1,650			466
Total liabilities		23,526			17,462

Stockholders’ equity:
Common stock and additional paid-in-capital		281,428			266,013
Treasury stock at cost		(54,882	)		(50,383	)
Accumulated deficit		(25,752	)		(39,780	)
Accumulated other comprehensive loss		(1,991	)		(1,543	)
Total stockholders’ equity		198,803			174,307
Total liabilities and stockholders’ equity	$	222,329		$	191,769

PDF SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)

	Three months ended							Twelve months ended
	December 31,		September 30,			December 31,		December 31,		December 31,
	2016		2016 (1)			2015		2016		2015

Revenues:
Design-to-silicon-yield solutions	$	19,458	$	18,552		$	14,282	$	77,162	$	63,839
Gainshare performance incentives		8,975		8,707			9,790		30,299		34,138
Total revenues		28,433		27,259			24,072		107,461		97,977

Costs of Design-to-silicon-yield solutions:
Direct costs of Design-to-silicon-yield solutions		12,040		11,366			9,984		44,074		38,847
Amortization of acquired technology		96		86			96		374		176
Total costs of Design-to-silicon-yield solutions		12,136		11,452			10,080		44,448		39,023
Gross profit		16,297		15,807			13,992		63,013		58,954

Operating expenses:
Research and development		7,171		7,017			5,398		27,559		19,096
Selling, general and administrative		6,290		5,548			5,085		22,056		20,421
Amortization of other acquired intangible assets		92		106			107		432		196
Total operating expenses		13,553		12,671			10,590		50,047		39,713

Income from operations		2,744		3,136			3,402		12,966		19,241
Interest and other income (expense), net		378		(101	)		15		-10		181
Income before income taxes		3,122		3,035			3,417		12,956		19,422
Income tax provision		197		1,051			620		3,853		7,015
Net income	$	2,925	$	1,984		$	2,797	$	9,103	$	12,407

Net income per share:
Basic	$	0.09	$	0.06		$	0.09	$	0.29	$	0.39
Diluted	$	0.09	$	0.06		$	0.09	$	0.28	$	0.39

Weighted average common shares:
Basic		31,636		31,413			31,323		31,373		31,424
Diluted		33,293		32,578			31,858		32,431		32,164

(1) The results for the period ended September 30, 2016 have been updated to reflect the Company’s adoption of the Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The Company elected to early adopt this new standard in the fourth quarter of 2016, which required that any adjustments be reflected as of January 1, 2016, the beginning of the fiscal year that includes the interim period of adoption.

PDF SOLUTIONS, INC.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME (UNAUDITED)
(In thousands, except per share amounts)

	Three months ended									Twelve months ended
	December 31,			September 30,		December 31,			December 31,		December 31,
	2016			2016 (1)		2015			2016		2015

GAAP net income	$	2,925		$	1,984	$	2,797		$	9,103	$	12,407
Adjustments to reconcile GAAP net income to non-GAAP net income:
Stock-based compensation expense		3,067			2,977		2,639			11,002		9,756
Previously impaired deferred costs (2)		-			-		-			-		(1,892	)
Amortization of acquired technology		96			86		96			374		176
Amortization of other acquired intangible assets		92			106		107			432		196
Acquisition costs (3)		-			-		62			-		835
Acquisition related contingent earn-out (3)		-			-		25			-		500
Acquisition related deferred revenue adjustment (3)		1			3		400			169		901
Non-cash portion of income tax expense		(587	)		236		(390	)		558		2,725
Non-GAAP net income	$	5,594		$	5,392	$	5,736		$	21,638	$	25,604

GAAP net income per diluted share	$	0.09		$	0.06	$	0.09		$	0.28	$	0.39
Non-GAAP net income per diluted share	$	0.17		$	0.17	$	0.18		$	0.67	$	0.80

Shares used in diluted shares calculation		33,293			32,578		31,858			32,431		32,164


PDF SOLUTIONS, INC.
RECONCILIATION OF GAAP NET INCOME TO EBITDAR (UNAUDITED)
(In thousands, except per share amounts)

	Three months ended									Twelve months ended
	December 31,			September 30,		December 31,			December 31,		December 31,
	2016			2016 (1)		2015			2016		2015

GAAP net income	$	2,925		$	1,984	$	2,797		$	9,103	$	12,407
Adjustments to reconcile GAAP net income to EBITDAR:
Stock-based compensation expense		3,067			2,977		2,639			11,002		9,756
Previously impaired deferred costs (2)		-			-		-			-		(1,892	)
Amortization of acquired technology		96			86		96			374		176
Amortization of other acquired intangible assets		92			106		107			432		196
Acquisition costs (3)		-			-		62			-		835
Acquisition related contingent earn-out (3)		-			-		25			-		500
Acquisition related deferred revenue adjustment (3)		1			3		400			169		901
Depreciation expense		1,000			960		727			3,584		2,646
Income tax provision		197			1,051		620			3,853		7,015
EBITDAR	$	7,378		$	7,167	$	7,473		$	28,517	$	32,540

(1) The results for the period ended September 30, 2016 have been updated to reflect the Company’s adoption of the Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The Company elected to early adopt this new standard in the fourth quarter of 2016, which required that any adjustments be reflected as of January 1, 2016, the beginning of the fiscal year that includes the interim period of adoption.

(2) As announced on September 29, 2014, we were unable to close two Design-to-silicon-yield solutions contracts, which restricted our ability to book revenue relating to work on these projects and required us to impair previously deferred costs of $1.9 million in the three months ended September 30, 2014. As reported on January 7, 2015, in the three months ended March 31, 2015, we executed those two contacts, which increased our Design-to-Silicon-Yield Solutions revenue in the quarter by approximately $6.0 million. Reinstatement of previously impaired costs is not allowed under US GAAP. Accordingly, in order to match the revenue and the cost associated with these two contracts, management has included these costs in the current period as a non-GAAP reconciling item.

(3) As announced on July 20, 2015, the Company completed the acquisition of Syntricity, Inc., the industry leading hosted solution for characterization and yield management. In relation to this acquisition, the company incurred direct acquisition costs, acquisition related contingent earn-out and recorded an adjustment to reduce revenue recognized from deferred revenue arising from the acquisition. Accordingly, for non-GAAP purposes, the Company is excluding these expenses and the reduction to revenue in order to provide better comparability between periods.

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